The Rebirth Of Alternative Deal Structures

Nontraditional payment structures can open the door to new corporate partners.

Anheuser-Busch InBev’s new incentive-based sponsorship model puts a focus on nontraditional payment structures, thus rightsholders should be prepared for more nontraditional deals.

As the second-biggest sponsorship spender in 2016 ($355 million), other companies are expected to follow A-B’s lead by signing, or at least exploring, alternative fee structures.

Below, ESP SR highlights the pros and cons of pay for performance and other outside the box payment agreements.

Pay for Performance

PRO: Lowers risk factor for sponsors by rewarding property performance CON: Property is at risk for receiving fewer dollars if goals are not met

Pay-for-performance fee structures are based on a simple premise: properties are rewarded for meeting predetermined performance metrics.

Those metrics can range from the performance of a team to game attendance and social media engagement.

The deals don’t necessarily mean a property will receive fewer dollars if its goals are not met. Anheuser-Busch offers teams and leagues a baseline fee with incentives tied to their performance (a team that makes the playoffs, a new digital platform that increases awareness of the sponsorship, etc.) as part of its new sponsorship model.

The caveat: Properties that sign pay-for-performance deals need to make sure the performance metrics are based on factors under their influence. A property should be held accountable for attendance at an event, but not the number of attendees who apply for a credit card at a sponsored event—a metric typically outside their influence.

Revised Payment Schedules

PRO: By pushing back payments, makes it easier for sponsor to say yesCON: Limit’s property’s access to funds

Revised payment schedules give sponsors flexible in how and when rights fees are paid.

That can include back-loading a three-year contract so that the sponsorship fee is reduced in year one but higher in years two and three.

The caveat: While properties can use revised payment schedules to overcome a sponsor’s budget objectives, they must be comfortable with a lower fee in the first year of the partnership.

Sponsors can get around a cash rights fee by providing marketing support in lieu of cash.

The caveat: Properties need to consider whether or not they need promotional assistance, and if they do, how much assistance they need. Promotional commitments can be valuable for properties that sell tickets or raise money for a cause, but not so valuable for established events that draw sell-out crowds or have strong name recognition.

Fundraising partnerships allow a sponsor to conduct a fundraising program to raise cash for a sponsored property. That can range from an employee fundraising program to a cause-related marketing program.

The caveat: Fundraising partnerships work best with companies with a large employee base and/or those in the consumer-packaged goods category.

Escrow Accounts

PRO: Lower risk to sponsorCON: Limits property’s access to funds

This is a pay-for-performance variant where a sponsor puts money into an escrow account to ensure the property does everything they promised. If the property does not provide all the deliverables or do everything they said they’re going to do, the sponsor is not obliged to pay the money.

The caveat: Escrow accounts can be beneficial to first-event events and properties without a track record of working with sponsors, but not established events.

IEG Sponsorship Report

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